Saturday 29 April 2017

Investment ban raises fears for future of funds

Ailish O'Hora and Brendan Keenan

"DRACONIAN" rules on pension schemes threaten the survival of many private sector funds, employers' group IBEC has claimed.

As the Government struggles to sell its bonds on the market, Irish pension funds are prevented under the rules from buying them, even though the current high yields would meet their future pension costs.

The semi-state sector faces especially severe problems with its pension schemes. New figures show that, despite its financial crisis, the now nationalised Anglo Irish Bank is one of only three large commercial semi-state companies, alongside RTE and the National Treasury Management Agency (NTMA) to have a surplus in its pension scheme.

The deficit in the others is a whopping €3.5bn, although this is a major improvement on the €4.2bn deficit the previous year.

Brendan McGinty, a director of IBEC (Irish Business and Employers Confederation), called on the Government to reduce the "minimum funding standard" applied by the Pensions Board and give companies the necessary flexibility to make the best long-term investment decisions.

He said extremely volatile market conditions, combined with the funding standard, threatened the survival of many defined benefit (DB) pension schemes which pay a pension based on salary at retirement.

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Last week the Examiner group of newspapers announced a 50pc cut in pensions for its staff, given the shortfall under the Pensions Board rules which require schemes to be able to meet all their future liabilities at all times.

Part of the problem is that low bond yields in major economies mean the returns to pension funds are falling, and their theoretical deficit increasing. Paradoxically, many are not allowed to take advantage of high yields on Irish Government bonds in an effort to spread the risk.

"If the Pensions Board does not adopt a more moderated approach to solvency, it will deprive workers and pensioners of promised benefits." Mr McGinty said.

Both IBEC and Irish Congress of Trade Unions have expressed their support for a "sovereign annuity," as proposed by the Society of Actuaries and the Irish Association of Pension Funds.

"In this scenario, the State would relax the minimum funding standard to allow pension funds to provide for future liabilities by allowing them to fund pensioner annuities by purchasing Irish bonds in the future," Mr McGinty said.

The semi-state figures show that the fortunes of the Anglo Irish Bank's pension scheme improved by €1m between 2008 and 2009 as investment changes by trustees paid off.

Between 2008 and 2009, for example, the fund's investment in shares dropped from 38pc to 34pc, while its bond allocation rose from 44pc to 60pc.

According to Martin Haugh, director at actuarial firm Lane, Clark & Peacock, this would have contributed to the improvement.

The scheme does not include the pension entitlements of the disgraced former chairman of the bank Sean FitzPatrick, who was recently declared bankrupt because of his inability to repay €110m debts to his former employer.

Irish Independent

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